Medicaid is a joint federal/state program of medical assistance to eligible needy persons, usually those of us with disabilities. Medicaid services are provided by participating medical providers and reimbursed by the state. People who are over 65, blind, disabled, the parent of a dependent child, U.S. citizens, permanent resident-aliens, state residents, and financially needy are entitled to it.
But just like other government assistance programs, there are limits to what needs Medicaid covers. Thankfully, different techniques exist to satisfy the needs not covered by Medicaid. These include use of a trust to meet those needs without disqualifying the trust beneficiary (the person in need) from eligibility.
Some trusts can be used and remain exempt for Medicaid purposes. However, federal and state regulations governing these types of trusts are constantly changing and subject to different interpretation by state courts. States may deny Medicaid eligibility for up to 36 months for any uncompensated transfer of assets from a recipient. For trusts, the period can grow to 60 months of ineligibility. A review of each individual's situation with a skilled attorney and financial planner would be a wise decision.
Trusts established for people with disabilities under age 65 with payback language allows the individual (beneficiary) to be eligible for Medicaid. Upon his/her death, the balance in the trust must be used to reimburse (pay back) the state for the medical assistance paid. This is a trade-off for the state allowing eligibility but then requiring payback.
A pooled trust allows a beneficiary the use of assets without influencing eligibility. The trust must be set up and managed by a nonprofit association, and it requires all assets to remain in trust upon the beneficiary's death to benefit others. There is also an exemption for trusts consisting solely of pension, Social Security, and other income payable to a person with a disability. The balance of the trust, of course, would reimburse the state upon the beneficiary's death.
Keep in mind that a trust established by an individual when he/she is the beneficiary disqualifies eligibility for Medicaid. However, when a trust is set up by a third person (other than beneficiary or spouse), the rules become a bit more liberal. Establishing a special needs trust, a discretionary trust, or a combination to provide extra funds needed for the care and maintenance of the Medicaid recipient without disqualification is possible. These trusts provide for the beneficiary's special needs that are not satisfied through Medicaid coverage but differ in method.
A special needs trust stipulates which specific needs are to be satisfied, while a discretionary one leaves this up to the trustee's discretion. Each type takes the control of the assets out of the beneficiary's hands and, therefore, allows eligibility for Medicaid.
The establishment of a trust for the purpose of supplementing Medicaid coverage is a daunting task. In most cases, you can't have your cake and eat it, too. There's no easy way to retain control of income and principal and still qualify for Medicaid.
The use of a trust as a tool to satisfy special needs is possible but should be implemented with the guidance of a skilled attorney and financial planner.
Living Trusts: Fact & Fiction
Living trusts are powerful estate planning tools that can help many people. They provide certain advantages not available with other estate-planning devices.
Living trusts are a way to manage and control property during life and distribute it at death. Those of us with disabilities often need trusts for our benefit in handling our physical or financial needs. They are not, however, a cure-all.
Disciples of the living trust abound today. They tout the advantages with the fervor of a television evangelist. Let's separate the facts about living trusts from some of the fiction that is advocated.
First, it is necessary to understand the nature of living trusts. Technically, they are revocable inter vivos trusts. If a trust is "revocable," the person who establishes the trust can change all or any part of it, so long as that person is competent. Inter vivos is Latin for "during life."
At death, the living trust becomes irrevocable. Assets owned by living trusts generally are not included as part of the probate process at death. Probate is the court proceeding by which a deceased person's assets are gathered and distributed to his or her beneficiaries.
Fact or fiction?--avoiding probate is always desirable. In a strict sense, this is fiction. Probate can be an expensive and time-consuming process. However, many states have adopted the modern Uniform Probate Code that substantially streamlines the process. Also, in some situations, a probate proceeding may be desirable.
Fact or fiction?--living trusts always save money during administration of the estate. By avoiding the probate court, living trusts may save on associated attorney fees and court costs. However, there are still income and estate tax returns to file and legal, administrative, and asset transfer work to do. This claim is not fiction, although it is hyperbole.
Fact or fiction?--living trusts save on estate taxes. Fiction! Living masts do not necessarily save federal estate taxes. Estate tax saving provisions can be incorporated into living masts. However, those same provisions can be incorporated into a will. Therefore, living masts do not offer any inherent tax saving advantages.
Fact or fiction?--living trusts are private. This is largely fact. By avoiding the probate process, you can keep the distribution of your assets private. Also, if the trust is funded (i.e., assets have been transferred into the trust before death) the size of the estate can be kept quiet. However, some transfers, notably real estate, are always public.
Fact or fiction?--a living trust can help in the event of incapacity. Fact, provided you have placed assets in the trust before incapacity or a device exists to place them into the trust in the event of incapacity. If a disability occurs, consider speaking with an attorney experienced in the features and benefits of a special needs trust discussed above.
Another device, the durable power of attorney (see below), can be used in some cases as a less expensive alternative to the living mast when planning for incapacity.
A trust is not appropriate for every individual. Discuss the advantages with your estate-planning attorney if:
* You are the parent of minor children
* You desire privacy
* You own real property
* Your estate is in excess of the applicable exclusion amount
* You wish to avoid probate
The living mast is an important tool that provides many advantages. Living trusts are not, and never have been, a panacea. It is important to work with an experienced estate-planning attorney and evaluate all alternatives before adopting an estate-planning strategy.
Durable Powers of Attorney
Durable powers of attorney are useful tools when planning for the possibility of physical or mental incapacity. They allow for managing financial affairs or making medical decisions in spite of an incapacity.
In order to understand a durable power of attorney, you must first understand powers of attorney in general. A power of attorney is used to give one person the right to act on another person's behalf. The person who grants the power of attorney is called the "principal." The individual who is given the power is called the "attorney-in-fact." There are two types of powers of attorney: special and general.
A special power of attorney gives the attorney-in-fact the right to act for the principal in connection with a specific transaction or for some other limited purpose. For example, you could use a properly drafted special power of attorney to give your Florida lawyer the right to handle a real-estate closing in Florida while you remain in New York.
A general power of attorney is much broader. It grants the attorney-in-fact the ability to do for you almost anything you could do for yourself. Effectively, it creates a legal clone. Because of the broad powers granted by a general power of attorney, it should be used carefully.
Traditionally; powers of attorney expired under three circumstances:
(1) when revoked by the principal, (2) when the principal died, and (3) when the principal became incapacitated. A durable power of attorney is "durable" because it does not expire if the principal becomes incapacitated. This durability makes it such a useful tool.
A variation of the durable power of attorney is the "durable power of attorney for healthcare" (sometimes called a "healthcare proxy" or designation of "healthcare surrogate"). With this type, the principal designates another to make healthcare decisions in the event of the principal's incapacity:. This durable power of attorney is broader in scope than a living will, which generally is used to place limits on heroic medical treatment in the event of a life-threatening illness. Be careful; state laws vary in this area.
Durable powers of attorney are helpful estate-planning tools and are appropriate for many situations. However, they should generally be viewed as a supplement to--and not a substitute for--a living trust.
As always, check with your attorney for your particular situation for the best recommendations. Special needs trusts are precisely that: special. Therefore, it is extremely important you consult with experts in this field to make sure you receive proper information regarding this type of trust, and that it is written correctly.
As always, if I can help you in any way; do not hesitate to contact me.
Contact: Daniel C. Jones, Vice President-Investments, Raymond James & Associates, 401 City Avenue, Suite 700, Bala Cynwyd, PA 19004. 800-657-8969 / 610-771-0316 / Dan.Jones@Raymond James.com / www.RaymondJames .com/DanJones.